Avient Corporation

Good morning, ladies and gentlemen, and welcome to the Poly One Corporation second quarter 2019 conference call. My name is Catherine, and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will have a question and answer session at the end of the conference. As a reminder, this conference is being recorded for replay purposes. At this time, I would like to turn the call over to Joe DeSalvo, Vice President, Treasurer, and Investor Relations. Please proceed. Thank you.

Thank you, Catherine. Good morning and welcome to everyone joining us on the call today. Before beginning, we would like to remind you that statements made during this conference call may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements will give current expectations or forecasts of future events and are not guarantees of future performance. They're based on management's expectation and involve a number of business risks and uncertainties. any of which could cause actual results to differ materially from those expressed in or implied by the forelooking statement. Some of these risks and uncertainties can be found in the company's filings with the Securities and Exchange Commission, as well as in today's press release. During the discussion today, the company used both GAAP and non-GAAP financial measures. Please refer to the earnings release posted on the Poly1 website where the company describes the non-GAAP measures and provides a reconciliation from the most comparable GAAP financial measures. Operating results referenced during today's call will be comparing the second quarter of 2019 to the second quarter of 2018, unless otherwise stated. Joining me today on our call is our Chairman, President, and Chief Executive Officer, Bob Patterson, and Executive Vice President and Chief Financial Officer, Brad Richardson. Now I will turn the call over to Bob.

Well, thanks, Joe, and good morning. At 74 cents, we finished the quarter at the high end of the range we communicated when we raised our projections in early June. And this represents a 4% increase over last year. Sequentially, margins expanded in all segments when compared to the first quarter of this year. This helped us to offset much of the weakness we continue to experience in certain end markets and regions, as well as unfavorable foreign exchange. And as a result, we are now increasing our outlook for the balance of 2019, such that we expect EPS to expand 4% to 6% for the full year. I'll have more to say on our outlook in a moment, but for now we'll focus on current results and initiatives. Compared to the prior year's second quarter, our engineer materials segment led our performance with a 22% increase in operating income. I am very pleased with the investments we have made in composites, wire and cable applications, which have helped us to drive this growth. As you know, this has been a significant area of focus for us, as we build out a portfolio of more specialized materials and solutions in this segment. I am also pleased with the expansion of our sustainable solutions portfolio, which was up 7% year-to-date versus last year. These products are focused on reducing carbon footprint with lighter weight materials, increasing the recyclability of packaging, and reducing water usage to name a few of their benefits. Our efforts to build and leverage this portfolio with our customers cannot be overstated. We're playing a crucial role in the growing desire for brand owners and consumers to bring more sustainable products to market that create value for our planet and our performance. At a time when global trade wars and political uncertainty are negatively impacting commerce and consumer confidence, sustainable solutions are expanding. This, of course, is in stark contrast to what we are seeing in China and Europe auto, for example, which were down 23% and 7% respectively in the second quarter. And building and construction in the U.S. was, again, weak compared to last year. In fact, overall macro conditions really haven't changed much since we spoke last in April, and looking back at our improved performance against what we expected at that time, the drivers largely fall into the self-help category. We have reduced costs, done a better job of pricing, and improved mix led by composites and growth in SEM. We also benefited this quarter from several years of focus on end market diversification. Two of our key markets, healthcare and packaging, which now represent a combined 25% of our total company sales, were both up in the second quarter at 3% and 4% respectively, all of this helping to offset the demand weakness in other markets I just described. In addition, we also have the ability to pull on another self-help driver that you have listened to us describe often in the past, and that is our Lean Six Sigma team and culture, with over 4,100 associates who are trained in Lean principles, We are continually seeking and seizing opportunities for quality and efficiency improvements. At any given time, there are around 450 process improvement projects in flight, and those results, once completed, generate true bottom-line value. More recently, Poly1 customers are now directly benefiting as well. Our Lean Six Sigma Customer First service offering has been extremely well-received since launching it in 2015. and to date we have trained more than 180 customers in LSS methodology and project management, and they are now implementing process improvements in their own companies. LSS is no doubt an investment, and while we have been taking prudent actions to control spending in discretionary areas this year, we have not cut back in the strategic investments that enable our long-term strategy. We remain steadfast in our invest-to-grow approach, and continue to pursue the organic improvements and technology advancements that allow us to best serve our customers. And one of the most important measures we use for gauging our performance in this area is our vitality index, and that measures how much of our revenue is from products introduced in the last five years. For the second quarter, we remain world-class at 35%, and we have invested in innovation in our longer-term technology portfolio. and you will see the parallels between our R&D focus on sustainable solutions and our vitality index will strengthen even further. We see this dynamic currently through our composites and barrier technology offerings, and going forward, new products that enable our customers' sustainability goals will increase in concert as well. Brad will now provide a segment review and go a little deeper on our performance for the second quarter. Brad?